Policy Guide: China's healthcare payment System Analysis

⚖️ I. Framework of China’s Healthcare Payment System

China’s healthcare payment system operates under government-guided pricing, forming a "triple-layer protection" mechanism comprising basic medical insurance, individual out-of-pocket payments, and commercial insurance. All public hospitals strictly implement provincial Medical Service Price Catalogs, ensuring uniform pricing for identical services within each province. Core characteristics include:

1. Mandatory Government Pricing

   • Provincial healthcare security bureaus issue unified price lists (e.g., appendectomy: ¥6,800 in Shanghai vs. ¥4,200 in Henan)

   • Hospitals have no pricing autonomy; violations incur 5× fines (Price Law Article 39)

2. Multi-Layer Payment Structure

Payment Method	Coverage	Share (Inpatient)
Basic Insurance Pool	100% for Category A drugs; 50-70% for Category B	~70%
Individual Out-of-Pocket	Deductibles + non-reimbursable drugs + copay	16-45%*
Commercial Insurance	Secondary reimbursement for out-of-pocket costs	5-15%

3. Payment Reform TrajectoryTransition from fee-for-service to value-based DRG/DIP prepayment systems, with nationwide 2.0 grouping standards effective 2025.

💉 II. Basic Insurance Fund Payment: Primary Support

1. Payment Structure & Logic

• Catalog Control: Reimbursement limited to items in Drug/Procedure/Medical Facility Catalogs:

  • Category A drugs: 100% reimbursement

  • Category B drugs: Partial copay (e.g., 10% patient copay on ¥100 drug → ¥90 covered)

• Phased Reimbursement:

  • Deductibles apply (outpatient: ¥300-1,200; inpatient: ¥800-1,500)

  • Annual reimbursement caps: typically ¥200,000-300,000

2. Core Reform: DRG/DIP Prepayment

• Coverage: Implemented in 393 regions (191 DRG + 200 DIP), covering 95% of diseases and 80% of insurance funds.

• Mechanisms:

  • DRG: Fixed prepayment per diagnosis group (e.g., ¥6,000 for pneumonia regardless of actual cost)

  • DIP: Dynamic payment adjustment based on disease complexity scoring

• Outcomes:

  • 10% slower insurance expenditure growth

  • 15% reduction in per-admission costs

3. Settlement Efficiency

• Pre-reform: 60-day reimbursement delay → Post-reform:

  • Anhui: 60% advance payment on discharge day; monthly settlement in 1 day (released ¥17B liquidity in 2024)

  • Hainan: Payment within 24h of claim submission

💰 III. Individual Out-of-Pocket Payments: Direct Burden

Patient payments comprise three components, influenced by insurance type and region:

1. Cost Composition

Cost Type	Calculation	Example
Deductible	Fixed amount (inpatient: ¥800-1,500)	Full self-pay if expenses below threshold
Copay Rate	(Catalog cost - deductible) × rate (10%-40%)	15% copay for urban employees in Shanghai Tier-3 hospitals
Non-reimbursable Items	Off-catalog drugs, premium services	Targeted therapy drugs: >¥10,000/month

2. Vulnerable Group Protections

• "Treatment Before Payment": Poverty-stricken patients exempt from deposits (Jinzhai County, Anhui)

• One-Stop Settlement: Basic insurance + critical illness insurance + medical aid integrated (Changyang County, Hubei)

🛡️ IV. Commercial Supplementary Insurance: Secondary Protection

1. Positioning & Coordination

• Gap Coverage: Reimburses non-covered expenses (e.g., Shandong University student insurance: ¥30,000 drug coverage)

• Claim Requirement: Basic insurance settlement must precede claims (otherwise reimbursement drops to 60-70%)

2. Major Insurance Types

Insurance Type	Coverage Focus	Typical Terms
Million-Yuan Medical	Catastrophic costs	¥10,000 deductible → 100% beyond
Hui Min Bao	Pre-existing conditions accepted	Shanghai "Hu Hui Bao": ¥129/year; 70% specialty drug coverage
Specialized Plans	IVF/dental services	IVF installment: 30% down + 12 months

3. Claim Efficiency Issues

• Document complexity: Requires original invoices + medical records + insurance settlement slips (5+ documents)

• Delayed processing: Academic-year policies cause Sep-Apr claims backlog (Shandong University cases)

🏥 V. Private Hospital Premium Care: Market-Driven Pricing

Private institutions provide non-insurance-covered premium services under distinct payment logic:

1. Service & Pricing Models

   • IVF: ¥40,000-80,000/cycle (vs. ¥20,000-40,000 in public) → Installment payments common

   • Premium Clinics: Registration fees ¥500-2,000 (vs. public: ¥50-100) → Commercial insurance direct billing

   • Int’l Departments: C-section package ¥80,000 (Beijing) → Full self-pay/insurance settlement

2. Regulation & Risks

   • Price Filing: Must publicly disclose prices (though not government-controlled)

   • Overtreatment Concerns: Non-essential tests (e.g., genetic screening packages)

⚠️ VI. Challenges & Reform Directions

1. Structural Issues

• Regional Disparity: Shanghai inpatient copay 16% vs. Hebei rural 45%

• Catalog Lag: Innovative drugs take avg. 14 months to enter catalogs (e.g., PD-1 inhibitors)

• Insurance Fraud: ¥5.3B in fraudulent claims detected in 2024

2. 2025 Reforms

• Direct Pharma Settlement: Insurers pay manufacturers directly (Inner Mongolia pilot: 30-day payment cycle)

• DRG 2.0 Upgrade: 409 core + 634 subgroup refinements; new gene therapy categories

• AI Oversight: Hainan’s system detects 17 fraud types, blocked ¥530M in 2024

🌐 China-US-UK Payment System Comparison

Dimension	China	USA	UK (NHS)
Pricing Authority	Provincial governments	Hospital-insurer negotiations	Central government
Patient Burden	Avg. inpatient copay: ¥2,500	Avg. $3,100 (~¥22,000) per admission	£0 (but months-long waits)
Innovation Incentive	DRG surplus retention	Patent drug premium mechanisms	Budget caps limit new tech
Equity Gap	30%+ urban-rural reimbursement disparity	Uninsured face catastrophic bills	Private queue-jumping

💎 Conclusion: Coordinated Evolution of Multi-Layer System

China’s payment system is transitioning from volume expansion to value-based care under rigid government pricing:

• Base Layer (Insurance): DRG/DIP cost control → Province-level "zero-delay" settlement by 2025

• Supplementary Layer (Commercial): Covers advanced drugs/premium services (20%+ annual growth)

• Safety Net (Medical Aid): Prevents poverty; rural copay <30%

The core challenge remains balancing efficiency with equity—particularly in creating payment pathways for innovative therapies while preserving pricing control. Pilot reforms (e.g., Hainan’s specialty drug insurance, insurer-provider data sharing) are shaping China’s unique multi-payer ecosystem.

Sources: NHSA Policy Documents (2023-2025), Provincial Health Commission Reports, WHO Health Financing Database.